Famed patent firm Acacia hits unwelcome milestone

Shares plunge after court rules against firm in Microsoft patent case

By

JohnLetzing

SAN FRANCISCO (MarketWatch) -- Acacia Research Corp. has won notoriety for its legal pursuit of giants like Microsoft Corp. and Apple Inc., as the small firm's business model depends on extracting patent licensing deals from these companies -- often by threatening litigation.

But on Thursday, in a Texas courtroom, the first of Acacia's many lawsuits to reach as far as a jury trial resulted in a legal setback.

In addition to finding that Microsoft did not infringe on an Acacia patent related to technology used to quickly power up computers, the jury decision delivered Thursday in federal court in Lufkin, Texas, invalidated the patent itself.

The suit was the fourth brought by Acacia and its partners against Microsoft
MSFT, -0.74%
said Microsoft associate general counsel Andy Culbert. Filed in 2006 by Acacia affiliate Computer Acceleration Corp., it sought as much as $900 million in damages from Microsoft, based on sales of its Windows XP operating system.

But in its decision, the jury found that Acacia's patent lacked originality, and failed to provide instruction on how to develop the technology in question, Culbert said.

Acacia Chief Executive Paul Ryan said the fact that his firm's first jury decision resulted in a loss will not affect its business model. Ryan said that any time a case reaches a trial, there is a 50 percent chance it can be lost. "Patent litigation historically has proven to be risky," Ryan said.

Acquiring rights to patents and using them to reach licensing deals with large companies -- whether under threat of litigation or otherwise -- has become a flourishing business. Technology companies, which have been targeted inordinately by such firms, have responded by pressing Washington, D.C., lawmakers for legislation aimed at curbing the firms' ability to sue.

The Patent Reform Act, which was passed by the House of Representatives in September, includes limits on districts where plaintiffs in patent cases may sue, for example. A vote on a version of the patent bill in the Senate is expected for some time early next year, according to Dan Sweet, a representative for the Coalition for Patent Fairness. Coalition members include Microsoft, Apple
AAPL, -1.54%
Oracle Corp., Amazon.com Inc. and others.

Statistics provided by the coalition show 2,494 patent cases filed in the U.S. through October 2007, compared to 921 such cases filed in 1990.

A stand-out

Even among a large field of competitors, Acacia has distinguished itself as a particularly aggressive patent holding company, and has embraced the public spotlight that comes alongside suing high-profile companies.

In addition to the suit resolved Thursday, an Acacia partner filed a separate suit against Microsoft, Apple and other companies earlier this week over a patent related to technology that places text in word processing documents. Other companies that have been sued by Acacia include AT&T Inc., Hewlett-Packard Co., IBM Corp. and Sony Corp.

Ryan said that Acacia holds 84 patent portfolios containing "a few hundred" patents in total. Roughly 80 percent of those, however, are "low risk" patents, he said, which demand "extremely reasonable" royalty rates that are unlikely to spur a company to take Acacia on in court.

Barry Cohen, an attorney with Thorp Reed & Armstrong, LLP in Philadelphia, said the jury decision Thursday is unlikely to damage Acacia in the long term, unless it sets a pattern.

"It's not going to produce a setback unless they start losing a lot of these things," Cohen said.

Davenport Equity Research, which follows Acacia's stock, told clients in a note Friday that while the jury decision was a "major disappointment," "We continue to believe that [Acacia] is in the very earliest stages of exploiting a large market opportunity in the monetization of under-appreciated patent assets."

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